|
|
 | | | |
- close
- close
- close
- close
Starwood Hotels & Resorts (HOT) |
Suggest other news sources for this topic
WIKI ANALYSIS
Starwood Hotels & Resorts Worldwide (NYSE: HOT) owns and operates luxury hotels, retreats, and residences across the world. Approximately half of Starwood's hotels are outside of North America, with 397 in Europe, Africa, the Middle East, and Asia[1] and new Starwood hotels are being built in developing countries like China.[2] The company manages franchises that operate under its various brand names - St. Regis, The Luxury Collection, W, Westin, Le Méridien, Sheraton, Four Points, Aloft, and Element.[1] Because the company receives management and franchise fees regardless of actual hotel performance, operating as franchiser and hotel management company introduces a measure of stability into the company's earnings. In addition to its traditional hotel business, Starwood is involved in selling timeshare properties and residential properties.[1]
Starwood's markets its hotels under luxury brands, competing for customers on the basis of perceived quality rather than price.[1] This strategy works best in economies characterized by healthy levels of business travel and vacationers can afford to pay more for Starwood-branded hotels. HOT's brand name focus has been undermined by internet booking agencies that help customers select hotels based on price and star ratings instead of brand names.[3]
Like its rivals, Starwood is vigorously pursuing growth in China. But Starwood has made international expansion its main selling point in recent years, even hosting its most recent earnings conference call from Beijing. The company's future hotel portfolio in China is expected to double in number over the next several years.[4]
Business Overview
Starwood - one of the world’s largest hotel companies - uses its nine brand names to conduct business directly and through subsidiaries.[5] The company primarily generates income through its traditional hotel business but also makes money by selling timeshares and residential properties.[1] While over half of the company's properties are in North America, HOT has properties in all six habitable continents.[1] Starwood's strategy focuses on decreasing exposure to direct real estate investment and increasing hotel management and franchise agreements which management believes will be more profitable.[5]
Starwood Hotels' revenue grew from $4.70 billion in 2009 to $5.07 billion in 2010.[6] Its 2010 net income of $471 million is more than six times that of 2009's $71 million.[6]
Business Segments
Hotels and Vacation Ownership (86.4% of total revenue):[7] Includes a worldwide network of owned, leased, and consolidated joint venture hotels and resorts.[1] These properties are generally operated under HOT's proprietary brand names like St. Regis, The Luxury Collection, Sheraton, Westin, W, Le Méridien, and Four Points.[1] Sometimes properties are owned or operated independently but HOT collects fees for the use of its brand names.[1] Almost all of the total net income from this segment comes from the upper upscale and luxury hotels.
Residential Operations (13.6% of total revenue):[7] Develops, owns, and operates timeshare properties and provides financing to its customers.[1] Additionally, this segment generates income through licensing fees from branded properties and by selling residential properties.[1]
Trends & Forces
HOT is highly prone to business cycles
Based on HOT recovery after the recession between 2008-2009, HOT is subject to declines and rapid recoveries from declines as dictated by the global business cycle. This recovery is due to an increase in personal income. Since decrease in personal disposable income brought forth the reduction in demand for hospitality and transportation industries, increasing incomes put upward pressure on demand for hotels and transport. This upward pressure has resulted in increased prices. Increased prices may bring Starwood more profits. During recessions, new orders for rooms have come to a standstill, thus reducing the available number of rooms present for an ever-increasing global travel and hotel population. For example, in 2010, the smaller increase in supply and higher demand lead to a rise in occupancy. Higher occupancy rate is typically followed by increased daily rates. This increase in occupancy rate may continue beyond the first year since hotels are delaying or have delayed construction orders for more rooms until market has shown stability.
Internet reservation websites have the upper hand over Starwood
Internet bookings made by third party companies like Expedia and Travelocity grew at rates of up to 20% per quarter.[8] As more bookings are completed by third parties, the intermediary companies can obtain higher commissions, reduced room rates, or other significant contract concessions from hotel operators; the sheer volume of bookings they make gives them bargaining power over HOT. These companies also promote the importance of price and anonymous quality indicators (like star ratings) over brand identification in the hotel selection process; this prevents HOT from fulfilling its brand establishment goals.Although HOT continues to generate most of its revenues through traditional booking channels and its own website, the rise of these websites impacts Starwood's profitability.
Starwood's increased presence in China means exposure to Chinese economic cycles
Starwood is increasing its presence in China by constructing hotels and resorts in the country.[9] As Starwood sells many of its older hotels to decrease its real estate investments,[5] the impact that these new hotels will have on the company increases. However, this increases exposure to Chinese economic cycles. Since China is an emerging market economy, both booms and recessions will be exacerbated, and could increase volatility in HOT's yearly performance.
Competition
The industry is highly fragmented and no player commands more than 20 percent of the market share. Competition in the industry is generally based on the quality of rooms, restaurants, meeting facilities and services, attractiveness of locations, availability of a global distribution system, price and other factors. Although Marriott’s global presence across 68 countries enables it to offer services to a large number of customers, it lags behind its competitors who are present in 80-100 countries.
Choice Hotels International (CHH): CHH is a worldwide franchisor of hotels and the nation’s first hotel chain. The company franchises over 5,400 hotels under the Comfort Inn, Comfort Suites, Cambria Suites, Sleep Inn, Mainstay Suites, Quality Inn, Clarion, EconoLodge, Rodeway Inn, and Suburban Extended Stay brands throughout the US and more than 40 countries and territories. Choice generates a majority of its revenue from royalty fees, which are based as a percentage of gross room revenue of its franchised hotels.[10]
Hilton Hotels: Hilton is one of the leading hotel and leisure companies in the world. It is primarily involved in the management and development of hotels across the globe. Initially Hilton focused on acquiring and owning more real estate. However, it has recently changed its growth strategy, and it now focuses on spreading its operations through franchisees. This enables the company to earn revenues in the form of franchisee fee without incurring any additional costs to purchase real estate and construct hotels.[11]
Marriott International (MAR): Marriott International, Inc. (Marriott) is a worldwide operator and franchiser of hotels and related lodging facilities. The company has around 3,500 hotels spread across almost 70 countries. Marriott generates around 90% of its earnings from hotel operations and a nominal amount from timeshares. The company's largest geographic segment is the United States.
Orient-Express Hotels (OEH): Orient-Express Hotels (NYSE: OEH) is a hotel and leisure group, which is focused on the luxury market. The company owns and operates luxury hotels, restaurants, tourist trains, and river cruises in over 25 countries. OEH's hotels, many operated only seasonally, target luxury travelers.[12]
One major trend in the industry is the increasing competition in the area of increasing branded offerings. Marriott was one of the pioneers in promoting the concept of foreign brand awareness in the industry; however, its competitors have begun doing so more pro-actively. Starwood Hotels & Resorts (HOT)'s planned limited service brand, named “Project XYZ” and Hyatt Hotels Corporation (H)’s purchase of AmeriSuites brand and subsequent re-branding to Hyatt Place are steps in this direction.
Companies operating in this industry generally compete on the basis of quality and consistency of rooms, restaurants, meeting facilities and services; other factors include attractiveness of locations, availability of a global distribution system, and price. Starwood seeks to maintain a global presence which will offer equal quality of service to its customers throughout the world.[5] Unlike many of its competitors that attract customers with low costs, Starwood's strategy focuses less on keeping rates low and more on the development of brand names to draw in revenue.[5]
| |||||||
